21 May 2015

Commercial Risk Europe: UK Insurance Act could disadvantage European buyers warns consultancy

European companies buying their insurance in the London insurance market could be at a disadvantage when a major overhaul of insurance contract law is implemented in the UK next year, insurance governance consultancy Mactavish warns.

The company’s chief executive, Bruce Hepburn, and Mactavish’s recently appointed advisor David Hertzell, said that European buyers who do not understand the implications of the UK Insurance Act 2015 risk failure to comply with its new obligations and not being able to recover losses under their policies.

Speaking to Commercial Risk Europe, they also cautioned that overseas buyers would be disadvantaged if wholesale brokers fail to pass on critical information about the Act. This could weaken the negotiating position of European policyholders if a claim is disputed under the forthcoming UK law, they said.

“There is a vast array of buyers in Europe buying complex insurance contracts in the London insurance market and from other jurisdictions using English law, and any resulting dispute under these contracts would therefore be covered by the Insurance Act 2015,” explained Mr Hepburn.

“The Act is a hugely positive development for those buying insurance under English law, however there is little or no publicity in Europe about the 2015 Insurance Act. Unless European policyholders that purchase in London comply with their new statutory duties then they will fail to realise the benefits,” he said. They also run the risk of falling foul of the law and placing their insurance cover under threat.

The Insurance Act covers commercial insurance contracts under English Law, but is not restricted to UK policyholders. The Act will apply to overseas policyholders insured by UK-based insurers under English law, including those in the London market.

The impact will also be felt in jurisdictions other than the UK—notably Bermuda—where the principles of the London market influence the legal framework, explained Mr Hertzell, who was previously the UK Law Commissioner. He saw the Insurance Act through its legislative process. It will also be felt in international courts, like the Dubai International Financial Centre courts, where law is based on English common law, Mr Hertzell added.

Mr Hepburn noted that parts of policies taken out by overseas buyers may be subject to the Act while others may not.

But overall the Act is positive for buyers. It is supported by both the insurance market and buying community, explained Mr Hepburn. However, the risk transfer industry has ‘not yet grasped the nuances of implementation and communication has not spread through the industry’, he said.

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